Moody’s Investors Service issued a request for comment on a proposed revision to its rating methodology for assigning Bank Financial Strength Ratings.

BFSRs evaluate the stand-alone financial strength of banks without reference to external support factors. Moody’s said that the proposed methodology is “intended to enhance both the transparency and consistency of this type of rating.”

Moody’s chief credit officer for financial institutions, David Fanger, said that this revision does not change the main factors that Moody’s considers when rating banks. “However,” Fanger says, “the revised approach provides a single, global methodology instead of separate methodologies for mature and developing markets.”

“Moreover,” Fanger adds, “the new approach also establishes specific ranges for each factor that relate to different rating categories.” The analyst states that “this updated methodology is intended to provide investors and issuers with a transparent set of guidelines, thereby allowing them to better understand our rating process and how we reach our decisions.”

“We are requesting comments from market participants,” Fanger says, “because we believe that the implementation of this methodology could lead to changes in the BFSRs for a significant number of banks — although we do not expect most of those to exceed two notches.”

The revised methodology is designed to improve the consistency of Moody’s BFSRs. “As previously announced,” Fanger says, “Moody’s intends to incorporate joint-default analysis into our assessment of external support for banks later this year, and BFSRs are an important input into JDA for banks.”

“We believe the updated BFSR methodology will help ensure that existing BFSRs are indeed ‘pure’ measures of stand-alone financial strength and do not include external support,” he explains, noting that “this consideration is important in order to avoid double-counting external support when we implement JDA for banks.”

“To enhance BFSR consistency worldwide,” Fanger says, “we have also developed a rating scorecard that uses a common set of globally available financial metrics, together with key qualitative factors that Moody’s analysts consider to be critical in evaluating a bank’s intrinsic financial strength.” This scorecard will be used by Moody’s analysts as the first step in determining BFSRs, and will also be made available to Moody’s investor clients.

“In addition,” Fanger says, “the revised methodology and the rating scorecard should also enable investors and issuers to independently estimate a BFSR for most banks within two notches.”

Comments are sought by September 29. During the first three weeks of September, Moody’s will be presenting the updated methodology by means of teleconferences and regional briefings.